2007 VITA/TCE

Publication 4011
Foreign Student and Scholar Volunteer Resource Guide
(for use in preparing Tax Year 2007 Returns for Nonresident Aliens)
For the most up to date tax products, information and other training options such as visit www.irs.gov.

Coming together to strengthen communities through free volunteer tax return preparation programs

Publication 4011 (Rev. 2007) Catalog Number 34182T

Are you an exempt individual?—Decision Tree
If you are temporarily present in the United States on an F, J, M, or Q visa, use this chart to determine if you are an exempt individual for purposes of the Substantial Presence Test (SPT). Student F, J, M, or Q Visa Are you a full-time student? No Yes Teacher or Trainee J Visa Are you a student? Yes No

Are you in substantial compliance with your visa? No Yes You are an exempt individual for the

Are you in substantial compliance with your visa? Yes No

Have you been in the U.S. for any part of more than 5 calendar years? Yes No

Have you been in the U.S. for any part of 2 of the preceding 6 calendar years? No Yes
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Have you received permission from the IRS Field Assistance Area Director to continue to be an exempt individual? No Yes

Substantial Presence Test

Were you exempt as a teacher, trainee, or student for any part of 3 (or fewer) of the 6 preceding years, AND Did a foreign employer pay all your compensation during the tax year in question, AND Were you present in the U.S. as a teacher or trainee in any of the preceding 6 years, AND Did a foreign employer pay all your compensation during each of the preceding 6 years you were present in the U.S. as a teacher or trainee?

Yes

No

You must apply the Substantial Presence Test
2 Substantial Presence Test

Nonresident Alien or Resident Alien?—Decision Tree
Start here to determine your residency status for federal income tax Were you a lawful permanent resident of the United States (had a “green card”) at any time during the tax year?

Yes

No

Were you physically present in the United States on at least 31 days during the tax year?3

Yes

No

You are a resident alien for U.S. tax purposes.1,2

Were you physically present in the United States on at least 183 days during the 3-year period consisting of the tax year and the preceding 2 years, counting all days of presence in the tax year, 1/3 of the days of presence in the first preceding year and 1/6 of the days of presence in the second preceding year?

Yes

No

You are a nonresident alien for U.S. tax purposes. 3

Were you physically present in the United States on at least 183 days during the tax year?

Yes

No

Can you show that for the tax year you have a tax home in a foreign country and have a closer connection to that country than to the United States?

No

Yes

1 if this is your first or last year of residency, you may have a dual status for the year. 2 In some circumstances you may still be considered a nonresident alien under an income tax treaty between the U.S. and your country. Check the provision of the treaty carefully. 3 See Days of Presence in the United States in Publication 519 for days that do not count as days of presence in the United States. 4 If you meet the substantial presence text for the year after the tax year, you may be able to choose treatment as a U.S. resident alien for part of the tax year.

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Countries with Treaty Benefits for Scholarship or Fellowship Grant (Income Code 15)
• If a nonresident alien receives a grant that is not from U.S. sources, it is not subject to U.S. tax. • Scholarship or fellowship grants that cover tuition and fees (and books and supplies if required of all students) are not subject to U.S. tax. (Financial aid that is dependent of the performance of services, such as a teaching assistant, is treated as wages and subject to the code income 17, 18, or 19 provisions.) • Scholarship or fellowship grants that cover room, board and other personal expenses are subject to U.S. tax unless a treaty benefit (as summarized below) exists.

Country Bangledesh Belgium China, People’s Republic of C.I.S. Cyprus Czech Republic Egypt Estonia France Germany Iceland Indonesia Israel Kazakhstan Korea Latvia Lithuania

Maximum years in U.S 2 5 No Limit 5 5 5 5 5 5 No Limit 5 5 5 5 5 5 5

Amount Unlimited Unlimited Unlimited Limited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited

Treaty Article 21(2) 21(1) 20(b) VI(1) 21(1) 21(1) 23(1) 20(1) 21(1) 20(3) 22(1) 19(1) 24(1) 19 21(1) 20(1) 20(1)

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Countries with Treaty Benefits for Scholarship or Fellowship Grant (Income Code 15) (continued)
Country Morocco Netherlands Norway Philippines Poland Portugal Romania Russia Slovak Republic Slovenia Spain Thailand Trinidad and Tobago Tunisia Ukraine Venezuela Maximum years in U.S No Limit 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Amount Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Treaty Article 18 22(2) 16(1) 22(1) 18(1) 23(1) 20(1) 18 21(1) 20(1) 22(1) 22(1) 19(1) 20 20 21(1)
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Code 15 Income Scholarships

Caution: The following is a quick-reference summary of treaty benefits. For more information about the application of these treaty benefits, see Publication 901, U.S. Tax Treaties.

Countries With Treaty Benefits for Income From Teaching (income code 18)
Country Bangladesh Belgium China, People’s Republic of C.I.S. Czech Republic Egypt France Germany Greece Hungary Iceland India Indonesia Israel Italy Jamaica Maximum years in U.S. 2 2 3 2 2 2 2 2 3 2 2 2 2 2 2 2 Amount Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Treaty article 21(1) 20 19 VI(1) 21(5) 22 20 20(1) XII 17 21 22 20 23 20 22
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Countries With Treaty Benefits for Income From Teaching (income code 18) (continued)
Country Japan Korea Luxembourg Netherlands Norway Pakistan Philippines Poland Portugal Romania Slovak Republic Slovenia Thailand Trinidad and Tobago Turkey United Kingdom Venezuela Maximum years in U.S. 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Amount Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Treaty article 20 20 21(2) 21(1) 15 XII 21 17 22 19 21(5) 20(3) 23 18 20(2) 20A 21(3)

8 Code 18 Income

Caution: The following is a quick-reference summary of treaty benefits. For more information about the application of these treaty benefits, see Publication 901, U.S. Tax Treaties.

Countries With Treaty Benefits for Student Wages (income code 19)
Country Bangladesh Belgium China, People’s Republic of Cyprus Czech Republic Egypt Estonia France Germany Iceland Indonesia Israel Korea Latvia Maximum years in U.S. 2 5 No limit 5 5 5 5 5 4 5 5 5 5 5 Amount $8,000 2,000 5,000 2,000 5,000 3,000 5,000 5,000 5,000 2,000 2,000 3,000 2,000 5,000 Treaty article 21(2) 21(1) 20(c) 21(1) 22(1) 22(1) 20(1) 21(1) 20(4) 22(1) 19(1) 24(1) 21(1) 20(1)
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Countries With Treaty Benefits for Student Wages (income code 19) (continued)
Country Lithuania Morocco Netherlands Norway Pakistan Philippines Poland Portugal Romania Slovak Republic Slovenia Spain Thailand Trinidad and Tobago Tunisia Venezuela Maximum years in U.S. 5 5 No limit 5 No limit 5 5 5 5 5 5 5 5 5 5 5 Amount $5,000 2,000 2,000 2,000 5,000 3,000 2,000 5,000 2,000 5,000 5,000 5,000 3,000 2,000 4,000 5,000 Treaty article 20(1) 18 22(1) 16(1) XIII(1) 22(1) 18(1) 23(1) 20(1) 21(1) 20(1) 22(1) 22(1) 19(1) 20 21(1)

10 Code 19 Income

India Treaty Article 21(2)
An Indian student may take a standard deduction equal to the amount allowable on Form 1040 and may be able to claim the personal exemptions for a nonworking spouse and U.S.-born children. Treaty benefits for a scholar from India are very different from those for a student. The scholar benefit for income code 18 is lost retroactively if the visit exceeds 2 years. The standard deduction for single taxpayers in 2007 is $5,350. The deduction for married filing separately is $5,350. Nonresident aliens can’t file a joint return. Even though a student from India may be able to take an exemption for a nonworking spouse, this is not considered a joint return. Thus, the standard deduction for married filing separately must be used.

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China Treaty Article 19, 20(c)
Almost all U.S. tax treaties are limited to a specific number of years and may not be available for residents for tax purposes. The U.S. treaty with China provides that a scholar is exempt from tax on earned income for 3 years. After 2 years, a scholar will become a resident alien for tax purposes but is still entitled to 1 more year of tax benefits under the treaty. The treaty also provides that students have an exemption of up to $5,000 per year for income earned while they are studying or training. In most cases, the student will become a resident for federal tax purposes in their sixth calendar year. Students from China can continue to claim the treaty benefits on their resident alien tax return (if they still meet the definition of a student).

Canada Treaty Article 15
The students and scholars are permitted to use article 15 of the tax treaty, which applies to dependent personal services. The tax treaty with Canada is different from all other tax treaties because it (1) exempts all earned income if the nonresident earned no more than $10,000 in the tax year, but (2) taxes all income if the nonresident earned over $10,000. This treaty benefit is lost if the nonresident becomes a resident for tax purposes.
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Wage Calculation Worksheet
Since some employers do not issue the correct reporting documents to international students and scholars, the following formula will help you to accurately compute the amount of wages to be shown on the income tax return. Wages from Form W-2, box 1 (if any) Add: Code 18 or 19 income from Form, 1042-S (if any) Subtract: Code 18 or 19 treaty benefit (if any) Equals: Wages to be reported + −

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Filing Status
Generally, nonresident aliens must select either the single or the married filing separately filing status. Head of household filing status cannot be used if the taxpayer was a nonresident alien during any part of a year. Nonresidents who are married to U.S. citizens or other residents for tax purposes can elect to be treated as a resident alien and file a joint return. See Publication 519 for additional information.

Dependent Issues
Generally, nonresident aliens can claim only one personal exemption. Nonresidents from the following countries may be able to claim their spouse and children as dependents. Everyone claimed on the return must have either a social security number or an Individual Tax Identification Number (ITIN). Canada India Mexico South Korea See Publication 519 for additional information.
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Wages Filing Status Dependents

Local Information
(Use this page to list local contact numbers or state information.)

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Tax Credits and Nonresident Aliens
Tax credits are allowed to nonresident aliens only if they receive effectively connected income. Generally, nonresident alien students and scholars will not qualify for tax credits. Education Credits — If the taxpayer is a nonresident alien for any part of the year, they generally can’t claim the educational credits, such as the Hope and lifetime learning credits. Foreign Tax Credit — This credit will usually not be available to nonresident alien students and scholars. Their foreign-source income is usually not reported on their U.S. income tax return. Child Tax Credit — Nonresident aliens may be able to claim the child tax credit if all of the following conditions are met: • The child is a U.S. citizen, national, or resident alien, and • The child is a son, daughter, adopted child, grandchild, stepchild, or foster child, and • The child was under age 17 at the end of the year. Note: For additional information, see Form 8901, Information on Qualifying Children Who are Not Dependents (For Child Tax Credit). Earned Income Credit — If the taxpayer is a nonresident for any part of the year, the earned income credit is not available.

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Tax Credits

Source Documents
You may see many types of income documents when you are assisting international students and scholars. The following list may help you in identifying the documents you may see. Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding Many students and scholars will receive this form if they have income that is subject to treaty benefits. Publication 678FS provides more information on how to record the entries from this form. Form W-2, Wage and Tax Statement Most students and scholars are allowed to work. If they earn more than the amount exempted by their treaty, the excess should be reported on the W-2. When students and scholars work off campus, they often receive a W-2 for the full amount they earned. That is why it is important to use the wage calculation worksheet on page 11 of this guide.

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Form 1098-T, Tuition Payments Statement Academic institutions issue Form 1098T to students who paid tuition during the tax year. This form helps the students calculate the educational credits. Since nonresident aliens usually cannot claim the educational credits, the form is not part of their tax return. Form 1099INT, Interest Income Many banks and savings institutions issue the 1099INT to nonresident alien and scholars. Since most nonresident student and scholars do not need to report their interest income, the form is not part of their tax return. Form 1099MISC, Miscellaneous Income Sometimes a nonresident alien student or scholar will give you a 1099MISC. There are several complicated issues involved when this happens. If you or the other volunteers at your site do not know the procedures to follow when a nonresident alien student or scholar receives a 1099MISC, refer the taxpayer to a tax professional.

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QUALITY REVIEW SHEET
Are the name, address, and social security number correct? Is the social security number written to the right of the label? Is the filing status correct? Is the box marked? Are any allowable dependents properly listed? Are the dependents’ identification numbers written correctly? Are income items correctly transferred from Form W-2, Form 1042S, and Form 1099? Is all income reported? Be sure to include any gambling winnings and stock sales. Is the itemized deduction line completed accurately? Is the correct number of dependents claimed? If the taxpayer was eligible for any credits, have they been computed correctly? Does the amount of tax reported as withheld agree with the amounts listed on the Forms W-2 and 1042S? Did you include any withholding shown on Form 1099? Is the overpayment (balance due) computed correctly? Did you use a calculator to check your math? Is the return signed? Are all Forms W-2 and 1042S, as well as schedules and forms, attached to the return? Is the volunteer designation on the return?